July 27, 2011

And the hits keep coming! After the launch last week of the Great Euro Marshall Plan which was supposed to cure all economic diseases once for all, the bond tragedy has resumed relentless.
Yields on Italian 10-year bonds spiked to 5.8pc on Wednesday while Spanish yields punched through 6pc once again. Analysts remain perplexed by the decision of Italy's treasury to cancel bond auctions in mid August due to lack of liquidity and "reduced financing needs". Italy was expected to raise €68bn (£60bn) in August and September.
In the meanwhile there is a new entry in the bailout club.
Cyprus has been downgraded today two notches from A2 to BAA1 due to "fractious politics", exposure to Greece and the disaster of the energy crunch caused by the explosion and destruction of his main power plant on the 11th of July which destroyed 60% of Cyprus electricity output.

The darkening picture in Cyprus raises concerns that a fourth eurozone country might soon need some sort of rescue, exhausting bail-out tolerance in Germany, Holland, Finland and Slovakia, where a wing of the coalition has denounced the EU accord.

"The markets have started to see all the flaws in the summit deal," said David Owen, of Jefferies Fixed Income. "They know there has been no increase in the size of the European Financial Stability Facility (EFSF) and that it will not be in any position to intervene in the Spanish and Italian markets for quite some time because the changes have to be ratified by all parliaments."

"Unless the European Central Bank (ECB) steps in to buy bonds, this is going to be tested by markets over the summer. EU leaders have sent absolutely the wrong signal by thinking they have done the job and can now go on holiday," he added.
But the most interesting and scary piece of news today is the following:
Italian bank stocks fell sharply in Milan with Intesa down 5pc and Unicredit off 4pc.Deutsche Bank said it had cut its exposure to Italian debt from €8bn to €1bn since the end of last year, mostly by purchasing credit default swaps (CDS). This suggest Europe's banks have been the main buyers of Italian CDS for hedging purposes, rather speculators as claimed by Italian leaders. It appears that core Europe started now for quite a while to dump the peripheral PIIGS.
The economic outlook continues to darken in Italy. The manufacturing index fell for a fourth month in July, dipping below the contraction line of 100. Italy's business lobby Confindustria said growth would be "almost nil" this quarter. The group's leader Emma Marcegaglia said Italy's political system was unravelling, leaving industry to its fate.

Net foreign liabilities in Italy have reached 26pc of GDP, the Italian government leitmotiv has been always that Italy is safe since most of the debt is owned by Italian families, this has not been the case since now for some time regardless of the Prime Minister's media propaganda.
Italy is cushioned for some months and the traditional summer shutdown will let the country slumber through till September unless of course a major event wreak havoc on the international markets.
September though will be torture for PIIGS.

July 25, 2011

A recent special report from L'Espresso (available in Italian only) analysed the now legendary Caste of Montecitorio, The Italian MPs have the distinguished honour of being among the best paid politicians in the world and have a productivity close to zero.
Every normal country in a period of austerity is witnessing politicians scrambling to give a good example cutting their salaries and benefits, after all electors would not digest massive cuts and tax increases if those in charge of the public welfare are not subject to them as well.
In Italy on the contrary not only the ultra-pampered political class has been unscathed by the recent wave of austerity but does not even bother to hide their privileges and rampant greed to the eyes of the nation.
The special report actually quote an MP who decided to talk of this publicly, maybe in a very uncommon act of guilt and shame.
For those outside of Italy who complain about political privileges, well you want to read the following and rejoice:
The Italian Parliament is normally working from Tuesday to Thursday although with the latest Government the working week has been reduced to 2 days, never in the last 2 years the Parliament has convened on Friday.
The base monthly salary of an Italian MP is 5.486,58 euro net to which you have to add a bonus of 3.503,11 euro; this bonus is simply given to attend Parliament's sessions and should be reduced of 206 euro for every day of absence although if you are absent only once in a series of 3 sessions it does not matter, no deduction is taken. No wonder there are record number of absences among Italian MPs also given the fact that Italian MPs can keep their previous profession and salary while serving in the Parliament.
On top of this there is a further 3.690 euro per month to cover expenses in the local district of the MPs and a further 1500 euro per month to cover transport expenses, travel and mobile expenses.
Total: 14000 euro per month net for a newly elected MPs, veterans can add further bonuses.
Furthermore they receive 3690 euro net per month to pay assistants, many of the MPs do not hire one but still they pocket this amount since there are no controls and the amount is paid regardless.
Others hire assistants without contracts and pay them in black or in other cases 2 or 3 MPs hire one assistant who work for all of them and then split the salary to pocket the rest.
Even more, they receive 3098 euro per year to cover telephone bills and 1500 euro to purchase laptops, all without need of receipts and obtained regardless of being used or not. If you spend more than 3098 euro on calls, no problem the amount will be covered by the Parliament just the same.
Do they want to buy a car, they get an exclusive discount only for MPs which can go according to the car brand from 10 to 25%. All MPs are exempt from paying toll-highways, trains, flights (but it must be first class), ships and buses regardless if for public or personal reasons, it is enough to show you MP badge.
Of course from the airport to your villa or Parliament you cannot pay a taxi so a further allowance between 1.007 to 1.331 euro per month is provided to cover taxi expenses. The only expense not covered is flight travels abroad but since they can accumulate air miles with their free Alitalia travels, even if only to have a cappuccino in a different city, they can swap those miles for free international tickets.
If you decide to take your car and you get a ticket for whatever reason, no problem you can simply ask a special office of the Parliament to contact local authorities and invoking official reasons ask to destroy the ticket.
Of course it is rare for many of them to use private cars since the legendary "Blue Cars" are readily available.
Blue Cars is the nickname for official cars (almost all of them are dark blue), there are 86000 cars in service (as a comparison in United States there are only 72000 government cars with a government and population 6 times in size) and available to any medium-high governmental officers, including top MPs.
They cost to the state 3 billion euro per year.
There are of course Blu Flights as well, government airplanes used by MPs in some cases even for private reasons, after all Prime Minister Berlusconi used government flights to ship entreneurs, jokers and musicians to his villa in Sardinia as witnessed by judges investigating one of his many sex scandals.
As an MP if you want to relax and watch a show or a football match, you are entitled to free entry to almost any sport event in Italy, it is sufficient to show your special card.
The Parliament restaurant is a top class restaurant where meal are served with a 5 star service and quality, below a copy of the menu and relative prices in euro: a grill steak between 2 and 5 euro a main pasta meal at 1.60 euro, this gourmet restaurant is much cheaper than the dirtiest kebab place.

Do you need a mortgage to buy a villa there is a special bank in the Parliament that provide all MPs with a consistent lower interest rate for mortgages and lending, just a mere 2 per cent of interest rates.
If you feel a little bit stressed by the political intrigues and you need a Shiatsu massage or a thermal spa, no worries you get even that free and if you need prescription lenses, any spa treatment or therapies they are free for both MPs and families.
Of course life expectancy with such a stressful job is very low and MP have the right to retire with a pension on average of 6000 euro per month net after only 5 years of service in the Parliament.